Is it a bad time to buy residential investment properties in NC?

Question

I can see that property values are up in the area. I may be interested in purchasing residential rental properties in the RDU area-particularly Durham/Hillborough/Chapel hill area. I'm wondering, considering the uptick in real estate prices in the area, if this is a bad time to purchase an investment property in the area. I was also wondering how the rental market is in the durham and other areas. I have seen A LOT of rental buildings go up in the past couple years and I'm wondering how that will impact the rental market for those of us with rental homes or other. Are there certain cities in the RDU area that would be better for purchasing rental properties? If you were to invest in investment real estate right now, what type of investment would you choose and where?

Chris Martin · Answer

As a contrarian investor and a believer in market cycles, I believe that your odds are better (possibly much better) if you buy in a buyer's market and sell in a seller's market. The fact is the Raleigh market is in a protracted seller's market. Based on the prior two sentences, I would be cautious about retail priced investing, which is what there is unless you know how to extract a property from an owner w/o market forces at work... meaning buying from a seller who is not ready, willing, or able to sell. I made a living in this space in the last buyer's market. I bought from the courthouse steps from owners who were not ready to sell, mostly not willing (they were forced by the lender) to sell, and some were not able (since they were dead or incarcerated) to sell. And I was the only one bidding at the trustee sale. That was last cycle.

Here's a broker's definition: "A seller's market is one in which there are more buyers than homes for sale. Since supply is less than demand, homes will be higher priced and more attractive to the sellers in the market. In contrast, a buyer's market is one in which there are lots of sellers and relatively few buyers, which leads to lower prices."

The concept "There's really no bad time to buy real-estate in the long run." has been proven false. That was pitched by NAR as the wheels were falling off and well after a million foreclosures started. No, we aren't there now, but here's a little history lesson, posted right here on BP. There were a lot of us on BP that saw what was going on. It really wasn't that hard to see. That's why we posted about it back then. IT'S ALWAYS a good time to buy for a broker. If you default, then they get to sell your house as an REO!

So posts like "...it's probably not a great time to purchase SFR/1-4 unit properties for a buy and hold type of strategy. It's a great time to be selling..." I agree with. It's a seller's market. If you gotta buy and become a motivated buyer, then I think you will have a hard time compared to buying from motivated sellers. Unless you work hard and find conversion property where you change best-and-highest and create value. But cycles happen. In general, I would advise being patient and waiting for a more sane market.

Christopher K. · Answer

@Chris L. IMHO, the cold hard reality of Raleigh/Durham and the immediate surrounding suburbs is that it's very much a hot sellers market and my guess is that prices are at or rapidly approaching the top of the current market cycle. In my oversimplified view, that means it's probably not a great time to purchase SFR/1-4 unit properties for a buy and hold type of strategy. It's a great time to be selling (IE - Flipping, provided you can actually find a deal. Competition from local investors is very strong).

I'm not trying to sound discouraging at all, I make a full time living in this market and know several others that do as well. There is money to be made. But the people I know making the most money these days around here are either doing development, new construction, flipping, commercial brokerage or a combination of these. Flipping probably being the most rare (as far as people I know that are making a full time gig out of it and consistently making good money).

Unless you have a niche that most other people aren't doing around here, or you have some sort of 'in' with an experienced local investor (who is willing to siphon their deals off to you), and/or you are able to consistently devote the time equivalent of somewhere between a part-time job and two full-time jobs working your lead/acquisition system - you might find it very challenging to do much more than get lucky here or there, best case.

To me, the less than top tier cities/markets in NC seem to be a smarter play for the picking up rentals right now (so - NOT Charlotte, Raleigh, Durham, perhaps to a slightly lesser extent Wilmington, etc).

But I'm wrong about all sorts of things all the time, just ask my wife. The ole' adage 'Your Mileage May Vary' can apply here .. probably just like almost anywhere. I think a good investor can make money just about anywhere in any market. Including this one. I think you're asking the right questions. But like most hot markets, my experience here is that the local guys are the ones scooping up a majority of the good under market deals, leaving mostly picked over scraps and retail prices for just about everyone else.

Teddy Smith · Answer

From what I hear about Raleigh, it sounds like mad house.

Overall, you can't time markets, OP. Ever since 2008 happened, everybody is in fear of the next "big one", but it may not ever happen for a very long time (or it could happen as I type this!)

1. If you plan on using the property as a long term investment

2. If you have the funds to survive a re-roofing, AC replacement, eviction, etc/

There's really no bad time to buy real-estate in the long run. Unless you are highly leveraged, don't worry about market timing. Doing that will keep you up at night. The point of real-estate is to set you free, not create more stress.

There's no such thing as an investment that's "better". More dependent on your individual needs and wants.

Troy H. · Answer

@Christopher K. great insight. I have been curious about that market myself. Thanks for sharing.

Hamid Hotaki · Answer

@ Chris K and M.

Totally agree with your assessments of this market, and not to mention these large mutual fund buyers who pay retail price for foreclosure properties.

on another note, can you recommend a bank that does 25 year commercial loan? I am leaning towards First Citiz., but they don't do 25.....

Thanks,

HH

Aaron Vergason · Answer

Do a credit check and background check on anyone you are thinking of turning your money over to.  If their personal credit score is poor, you can be assured when something causes less than favorable returns, you might not see a return.

Christopher K. · Answer

@Chris L. I do have some experience with that sort of thing but from your original post to this response, I'm having kind of a hard time following some of the details and exactly where you're fitting into this hypothetical/not-so-hypothetical situation. But buying properties, renovating them to rent-ready, securing a tenant, and then re-selling to a passive investor who didn't want to do all of the aforementioned work (turn-key) is probably on page 2 of the oldest games in town book. But like almost anything in real estate, most things are highly localized and market specific, and there are definitely:

a) Wolves out there pouncing at the opportunity to take your money

b) Very well intentioned people who just don't know what they're doing

c) People who do appear to have a successful track record but can be a bit short-sighted (throwing large sums of money into the real estate game with no regard or proper planning for the next inevitable market shift)

d) People who seem to get lucky sometimes

and

e) Guys who are experienced, have a track record, and are prepared to play the long game (are aware of market cycles, have a plan that limits their and/or their investors exposure during potential transition periods between market swings, and so forth)

There's probably more but that's my short list off the top of my head. Being offered or making a 12% return on your money secured by real estate is not unrealistic or pie in the sky/too-good-to-be-true. But you still can lose if you don't vet your potential partners and do your homework on them, their system, and the security (real estate) itself. I realize that's what you're attempting to do now, I believe. I'm saying some of this for everyone's benefit that might be reading this.

If you'd like, shoot me an email (it's in my signature) and I can try and gain a little more insight into what you're looking into and let you know if I think it's probably legit or worth pursuing further.

Chris L. · Answer

It's sort of a tough situation as I can sell my property at a good price right now but then there are really not any investment properties to buy here with the funds. I met someone at a local real estate meeting recently who has private investors and offers a 12% return. Not sure how that works.  His firm purchases properties, fixes them up , gets renters in there and sells or sells without renters. They have been doing it for some time. I'm just wondering about this option and what to look out for. Do you have any experience with this or any input on this? I wouldnt invest with someone Willy hilly but I'm wondering if that would be an option since the market is tougher for the buyer.

Is it a bad time to buy residential investment properties in NC?

Most Popular Reply